May 20, 2014 (LBO) – Sri Lanka’s Central Bank held policy rates at 6.5 and 8.0 percent with private credit showing positive growth in March, and said a government credit guarantee would be available for gold backed loans. The Central Bank was holding its policy repo rate at which the excess liquidity is withdrawn from the market at 6.5 percent and the rate at which cash is injected at 8.0 percent.
The central bank said there was further room for lending rates to come down.
Update II Gold-backed loans from banks have contracted after gold prices fell and borrowers defaulted making banks more cautious to lend.
“In order to counter the effect of the continued decline in pawning advances on productive sectors of the economy, the Monetary Board also granted approval to implement a credit guarantee scheme on pawning advances on behalf of the government,” the Central Bank said in its May monetary policy statement.
In March commercial banks had increased rupee denominated loans to private borrowers by 15.3 billion rupees but some repayments of dollar borrowings foreign invested firms, reducing the total to 7.6 billion rupees.
“The sharp decline in pawning advances contributed largely to the contin